Malaysian Economy Continues to Expand, Budget Deficits Remain High

Gross domestic product rose 5.4 percent in the three months through June from a year earlier, after expanding a revised 4.9 percent in the previous quarter
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Prime Minister Najib Razak’s increased spending ahead of a general election that must be called by early 2013 has bolstered Southeast Asia’s third-largest economy
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Najib has raised civil servant salaries and pensions, waived school fees and increased handouts for the poor under a 232.8 billion-ringgit ($74 billion) budget this year as he works to boost support for his ruling coalition. In June, the government proposed to expand the annual allocation by 13.4 billion ringgit.

Growth of 5% in these economic times is very good news. One of the biggest risks to the Malaysian economy is increasing budget debt. The total debt is over 50% of GDP now, which is actually an acceptable figure (if annual deficits are small). But the annually deficient is extremely unsustainable at over 5% of GDP the last few years.

A total government debt level over 75% is a serious problem. Over 100% and it often leads to extreme financial harm. Japan, so far, has been an exception with huge debt loads being sustained. Japan has had a troubled economy the last few decades but has been surviving the extremely high debt much better than most countries would.

At the rate it is going Malaysia would join the extremely high government debt levels now seen in Europe and the USA in just a few years.